The Biggest Buyers of American Stocks Are on the Sidelines Right Now – The New York Times

It isn’t counterintuitive to us — we have been concerned about the quantity of buybacks for some time, even more so since the Trump Tax Cut. This piece points out that the use of so much capital for buybacks has ripple effects for the market and the economy.

It may seem counterintuitive, but the largest single source of demand for American stocks is the American companies that issue them. Companies are on track to repurchase more than $770 billion in their own stock this year, according to research from Goldman Sachs. That’s more than twice the size of the next largest source of demand, exchange-traded funds, which last year bought $347 billion in shares.But those companies are getting ready to report earnings, an event that is preceded by a regular slowdown in buyback activity. Some large market dips in the past year have coincided with these quarterly slowdowns.

Keith Parker, head of United States equity research at UBS Investment Research, said the market has been weaker when buybacks have slowed. “When that dries up or slows significantly, you’re having outsized market effects,” he said.